What Are the UK Tax Brackets for 2025/26?
The UK tax brackets for 2025/26 determine how much income tax, corporation tax, dividend tax and National Insurance you pay. The current tax year runs from 6 April 2025 to 5 April 2026 [1].
If you run a limited company, work as a sole trader or operate through a partnership, these rates directly affect your take-home pay and your business's tax bill. Getting them right means you plan your drawings, dividends and salary efficiently.
This article covers every major tax bracket and threshold you need to know for 2025/26. We'll work through each one with real numbers and practical examples.
Income Tax Bands for England, Wales and Northern Ireland
Income tax applies to your taxable income after deducting your Personal Allowance. The bands are the same for England, Wales and Northern Ireland. Scotland sets its own rates.
Personal Allowance
The standard Personal Allowance is £12,570 [1]. You pay no income tax on income up to this amount. If your adjusted net income exceeds £100,000, your Personal Allowance reduces by £1 for every £2 of income above that threshold [1]. Once your income reaches £125,140, your Personal Allowance is zero [1].
For a limited company director taking a salary of £12,570 and dividends above that, the salary uses the Personal Allowance. No income tax is due on the salary itself.
Basic Rate Band
Taxable income from £12,571 to £50,270 is taxed at 20% [1]. This is the basic rate. Most sole traders and directors drawing modest dividends fall within this band.
Example: A freelance consultant in Manchester with taxable profits of £45,000 pays 20% on £32,430 (£45,000 minus £12,570 Personal Allowance). The tax bill is £6,486.
Higher Rate Band
Taxable income from £50,271 to £125,140 is taxed at 40% [1]. This band catches many successful business owners who combine salary with dividends or self-employed profits.
Example: A limited company director in Bristol takes a salary of £12,570 and dividends of £60,000. Total income is £72,570. After the Personal Allowance, taxable income is £60,000. The first £37,700 is taxed at 20% (£7,540). The remaining £22,300 is taxed at 40% (£8,920). Total income tax: £16,460.
Additional Rate Band
Income above £125,140 is taxed at 45% [1]. This rate applies to high-earning contractors, business owners with significant dividend income, and partners in profitable firms.
Dividend Tax Rates for 2025/26
Dividends are taxed at separate rates. The dividend allowance for 2025/26 is £500. Dividends within this allowance are tax-free. Above that, the rates are:
- Basic rate taxpayers: 8.75%
- Higher rate taxpayers: 33.75%
- Additional rate taxpayers: 39.35%
These rates apply to dividend income above the £500 allowance. The dividend tax rates are lower than income tax rates, which is why most limited company directors pay themselves a small salary and take the rest as dividends.
Example: A director with £50,000 total income (salary plus dividends) pays 8.75% on dividends above the £500 allowance. A director with £80,000 total income pays 33.75% on dividends above the allowance.
Corporation Tax Rates for 2025/26
Corporation tax is charged on your company's profits. The rates for 2025/26 are:
- Small profits rate: 19% on profits up to £50,000
- Main rate: 25% on profits above £250,000
- Marginal relief: applies between £50,000 and £250,000
The marginal relief calculation gradually increases the effective tax rate from 19% to 25% as profits rise. For a company with £150,000 profit, the effective rate is around 22.5%.
If your company has associated companies, the thresholds are divided by the total number of associated companies plus one. A company with one associated company has thresholds of £25,000 and £125,000.
For more detail on how corporation tax interacts with your overall tax position, see our corporation tax guide.
National Insurance Contributions for 2025/26
National Insurance applies to employment income and self-employed profits. The key thresholds for 2025/26 are:
Employer NI (Class 1)
- Secondary threshold: £9,100 per year
- Rate: 13.8% on earnings above the secondary threshold
- Employment Allowance: up to £10,500 (eligible businesses)
If you pay yourself a salary of £12,570 as a director, the employer NI on the amount above £9,100 (£3,470) is £479. The Employment Allowance can cover this if your total employer NI bill across all staff is below £10,500.
Employee NI (Class 1)
- Primary threshold: £12,570 per year
- Rate: 8% on earnings between £12,570 and £50,270
- Rate: 2% on earnings above £50,270
A director paying themselves a salary of £12,570 pays no employee NI because the salary matches the primary threshold.
Self-Employed NI (Class 2 and Class 4)
- Class 2: £3.45 per week (profits above £6,725)
- Class 4: 9% on profits between £12,570 and £50,270, then 2% above £50,270
Capital Gains Tax Rates for 2025/26
Capital gains tax applies when you sell business assets, shares or property. The rates for 2025/26 are:
- Basic rate taxpayers: 18% (non-residential), 18% (residential property)
- Higher rate taxpayers: 24% (non-residential), 24% (residential property)
- Business Asset Disposal Relief (BADR): 14% (rising to 18% from April 2026)
The BADR lifetime limit is £1 million. Shares in a trading company held for at least two years qualify. The old 10% rate applied before 6 April 2025.
If you sell a rental property, you must report the gain to HMRC within 60 days using the 60-day CGT property return.
VAT Thresholds for 2025/26
The VAT registration threshold is £90,000 in a rolling 12-month period. Once your turnover exceeds this, you must register for VAT. The deregistration threshold is £88,000.
Many businesses register voluntarily before hitting the threshold, especially if they deal mainly with VAT-registered customers. The flat rate scheme is still available, though limited cost traders must use the 16.5% rate.
For more on VAT planning, visit our services page.
Making Tax Digital for Income Tax
MTD for ITSA becomes mandatory from April 2026 for self-employed individuals and landlords with qualifying income over £50,000. From April 2027, the threshold drops to £30,000. From April 2028, it drops to £20,000.
If you are a sole trader or landlord above these thresholds, you must use MTD-compatible software to keep digital records and submit quarterly updates to HMRC.
Practical Examples for Business Owners
Limited Company Director (Profits £80,000)
Salary: £12,570 (no income tax, no employee NI). Employer NI: £479 (covered by Employment Allowance). Dividends: £67,430. Dividend tax: £500 allowance, then £66,930 taxed at 33.75% = £22,589. Total tax: £22,589. Corporation tax on company profits: 19% on first £50,000 (£9,500), marginal relief on remaining £30,000 (effective rate around 22.5% = £6,750). Total corporation tax: £16,250.
Sole Trader (Profits £45,000)
Income tax: £32,430 at 20% = £6,486. Class 4 NI: £32,430 at 9% = £2,919. Class 2 NI: £3.45 x 52 = £179. Total tax and NI: £9,584.
Contractor Inside IR35 (Day Rate £500, 220 Days)
Deemed employment income: £110,000. Income tax: £12,570 personal allowance, then £37,700 at 20% (£7,540), then £59,730 at 40% (£23,892). Total income tax: £31,432. Employee NI: £37,700 at 8% (£3,016), then £59,730 at 2% (£1,195). Total employee NI: £4,211. Employer NI: 13.8% on £100,900 = £13,924. Total deductions: £49,567. Net take-home: £60,433.
How to Plan Your Tax Position
Understanding your uk tax bracket is the first step to minimising your tax bill. For limited company directors, the most efficient strategy is usually a salary at the Personal Allowance threshold plus dividends up to the basic rate band. Above that, the higher rate dividend tax of 33.75% makes other options worth considering, such as pension contributions or retaining profits in the company.
For sole traders, the self-employed rates are straightforward but the NI burden is higher. Incorporating can save tax once profits exceed around £40,000 to £50,000, but you must factor in the extra compliance costs.
If you are considering incorporation, read our incorporation guide for a full comparison.
Key Allowances and Reliefs for 2025/26
- Annual Investment Allowance (AIA): £1,000,000 per year
- Full Expensing: available for limited companies on most main-rate plant and machinery
- Structures and Buildings Allowance: 3% per year
- R&D tax credits: merged scheme from April 2024. SME-intensive companies can use ERIS
- Trivial benefits: £50 per gift, £300 annual cap for directors of close companies
- Director's loan account: loans over £10,000 trigger a benefit in kind. S455 tax at 33.75% if not repaid within 9 months and 1 day of year-end
For more on R&D claims, see our R&D tax credits page.
Scottish Income Tax Rates
Scotland sets its own income tax bands. For 2025/26, the starter rate is 19%, the basic rate is 20%, the intermediate rate is 21%, the higher rate is 42% and the top rate is 47%. The Personal Allowance remains at £12,570. If you live in Scotland, your tax calculation differs from the rest of the UK.
Common Questions About UK Tax Brackets
What happens if my income crosses a tax bracket mid-year?
HMRC uses a cumulative system. Your tax code adjusts automatically. If your income rises above the basic rate band, your employer or pension provider will deduct 40% on earnings above £50,270 from that point onwards. For self-employed individuals, the calculation happens at year-end on your self assessment return.
Can I reduce my tax bracket by making pension contributions?
Yes. Pension contributions reduce your adjusted net income. If your income is £60,000 and you contribute £10,000 to a personal pension, your adjusted net income drops to £50,000, keeping you within the basic rate band. This saves 40% tax on the contribution and may restore your Personal Allowance if you were above £100,000.
How do dividend taxes interact with income tax brackets?
Dividends are treated as the top slice of your income. They sit above salary, self-employed profits and pension income. Your income tax bracket is determined by your total income including dividends. The dividend tax rate you pay depends on which bracket your total income falls into.
Final Thoughts
The UK tax brackets for 2025/26 are stable compared to recent years, but the thresholds have not moved with inflation. The Personal Allowance and basic rate band have been frozen since 2021. This means more people are dragged into higher rate tax as their incomes rise.
If your profits are growing, review your structure annually. A limited company may still be more efficient than sole trading, but the gap has narrowed. The dividend tax increase and the frozen thresholds mean careful planning matters more than ever.
Our ICAEW qualified team at Holloway Davies can help you work through your specific numbers. Contact us to discuss your tax position.